Why Do Some Decentralized Stablecoins Require Over-Collateralization?

Over-collateralization is a risk-management strategy to protect against the volatility of the underlying crypto collateral. Since the collateral's value can drop quickly, requiring a ratio greater than 1:1 (e.g.

150%) provides a buffer. If the collateral value drops, the system can liquidate the collateral before the stablecoin becomes under-collateralized and de-pegs.